Time to start throwing money at euro crisis

Commentary: Is irrational resistance to bailout crumbling?

WASHINGTON (MarketWatch) — Watching European officials muddle through the euro crisis, we don’t know, as longtime CBS anchor Dan Rather used to say, “whether to wind the watch or to bark at the moon.”

As European officials discuss a number of new and expensive emergency measures, a rational person might ask what has been gained by rejecting a bigger bailout for so long while a bad situation worsens. It’s inevitable, anyway.

Nothing was gained, of course. The operative word in that statement is “rational,” and that’s what is missing from the equation.

Reuters

German Chancellor Angela Merkel says we need ‘more Europe,’ but does she accept what that means?

When German Chancellor Angela Merkel says “more Europe” is necessary and then rejects every logical consequence of that statement, she isn't being rational — she is preaching a neoliberal ideology that is making a shambles of the European economy and causing untold misery to millions of people.

In a long interview with Time magazine last week, radical Greek leader Alexis Tsipras blamed this ideological intransigence for the unrealistic austerity policies being foisted on southern European countries.

“I think it’s a combination of an irrational insistence and a neoliberal mantra,” said Tsipras, whose Radical Left Coalition seeks to emerge as the biggest party in Greece’s new round of elections June 17. Read Tsipras’s full interview.

Europe is at the same type of crossroads it faced in 1930s, when President Franklin Roosevelt chose expansionary government spending as the way out of the Depression, and European leaders opted for fiscal austerity that led to fascism, Tsipras said.

Because today’s European leaders could not be so “immature” or “silly” to not see that expelling Greece from the euro
EURUSD, -0.7836%
would lead to attacks on Spain and Italy, they are sure to “admit their mistake” and bail out Greece, he told Time.

What an optimist. Politicians, and especially ideologically driven politicians, never admit mistakes. Even if they turn on a dime and adopt policies they have vehemently rejected, they never admit they were wrong in the first place.

That would cement into place all the flaws in the current structure, Soros suggested, and “result in a euro zone dominated by Germany,” with a widening gap between creditor and debtor countries that would entail a constant transfer of payments. The European Union would turn into “a German empire with the periphery as the hinterland.”

Soros said Germany has a three-month window to make this move. He thinks it likely that EU leaders have bullied Greek voters into opting later this month for mainstream parties that still pay lip service to the bailout terms imposed on the country earlier this year.

However, it will become clear by fall that no Greek government can meet those terms. And by that time, Soros said, Germany itself will be facing a weakening economy and Merkel will no longer be able to push through a euro rescue. So something must be done within the next three months. Read Soros’s speech.

That’s his optimistic scenario, and may not be the one that prevails. Because Soros made it clear that Germany’s handling of the crisis so far hasn't been rational but has been a demonstration of the fallibility of all human activity. (The hedge-fund manager, who rejects the efficient market theory out of hand, has made his billions anticipating those fallible choices.)

“The authorities didn’t understand the nature of the euro crisis,” he said. “They thought it is a fiscal problem while it is more of a banking problem and a problem of competitiveness.”

As a consequence, they applied the wrong remedy. “You cannot reduce the debt burden by shrinking the economy, only by growing your way out of it,” Soros said, echoing a criticism of many economists.

Merkel’s strategy of waiting until the last possible moment and doing as little as possible isn't likely to succeed, according to Soros’s analysis.

“The crisis is still growing because of a failure to understand the dynamics of social change,” he said. “Policy measures that could have worked at one point in time were no longer sufficient by the time they were applied.”

Soros and Tsipras, needless to say, aren't invited to the EU’s high-level deliberations. Merkel and European Central Bank chief Mario Draghi may not accept their analysis of what the EU is doing wrong, but if officials start throwing money at the problem, they will have finally accepted the solution that was obvious from the beginning.

But they will never, ever admit they were wrong.

Oh, and if they don’t start throwing money at the problem, welcome to a replay of the 1930s.

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